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7 warning signs you're heading toward bankruptcy

Red flags for financial stress

Bankruptcies have fallen dramatically over the past three years as hiring has gradually improved and more people pay off their bills. For example, Phoenix-area filings over the first half of 2014 are down 54 percent over the same period in 2013, with a similar trend apparent around the state and nation. But that doesn't mean everyone is in good financial shape. A lot of debt-strapped people don't file for bankruptcy because they can't afford to pay attorney and court costs. Here are some indicators of financial stress provided by Credit.com that could indicate you might be teetering on the edge.

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Red flags for financial distress

You're already missing payments

This is the most basic sign. If you can't pay bills as they come due, that could indicate your debt has become excessive. It's especially worrisome if you can't meet major obligations such as a mortgage or auto-loan payment on time. (Arizona has the second-highest auto-repo rate, second only to Nevada's, reports credit-bureau Experian.) Credit-card bills are another litmus test. If you can't handle even the minimum monthly payments, watch out.

Red flags for financial distress

You can't qualify for debt management

Some consumers seek help by enrolling in a credit-counseling or debt-management plan, where a company or nonprofit group works on your behalf to prioritize bills, pay them in an orderly fashion and contact creditors to seek some type of relief. But you need assets or, especially, income to qualify for these programs. If you don't have them, you won't be able to enroll. If looking for credit help, consider a referral from National Foundation for Credit Counseling at nfcc.org.

Red flags for financial distress

You have exhausted your home-equity option

A home-equity loan can be used to pay down other types of debt such as credit-card balances, which feature higher interest rates. "The trick is to pay off the credit cards and not run them up again," said Credit.com. If you haven't cleared up your other debt problems after tapping the home-equity option, you could be in even worse shape. Then again, a home-equity loan isn't even an option for the one in three households that don't own dwellings - or others with negative equity.

Red flags for financial distress

You're getting phone calls from debt collectors

Another red flag involves threatening letters or demanding phone calls from debt collectors. "This usually occurs when your debts are 30 to 90 days past due," said Credit.com. "You might also get notices that a past-due account has been reported on your credit report, put into collections or charged off as uncollectable." A recent Urban Institute study indicated nearly 39 percent of Arizonans have debt in collections - almost four percentage points above the U.S. average.

Red flags for financial distress

You have maxed out your credit cards

Credit.com cites this as a key bankruptcy tipping point. Once you have run up the maximum allowable balances on your credit cards, you eventually will hit a wall, unable to get those maximums increased further and unable to gain approval for other types of loans. Another bad sign is relying on credit cards to cover basics expenses such as groceries or gasoline because no income source is available.

Red flags for financial distress

You have turned to high-cost loans

It's bad enough to use credit cards to fill short-term funding gaps, but turning to payday loans or vehicle-title loans can be worse. "Many of these loans have exorbitant interest rates, and they can often put you into a cycle of debt, where you're rolling over one loan to the next," said Credit.com. "Under these circumstances, bankruptcy can seem like the only escape."

Red flags for financial distress

You can't recover from a major financial setback

Many Americans don't have an emergency cash reserve on the sidelines -roughly two in five Americans couldn't scrape together even $2,000 within a month, according to a study by FINRA, the Financial Industry Regulatory Authority. That's why a big unreimbursed medical bill, a divorce, a job loss or other financial shocks can push people into bankruptcy. It's best to plan ahead before calamity strikes.

Here are some indicators of financial stress provided by Credit.com that could indicate you might be teetering on the edge.

Bankruptcies have fallen dramatically over the past three years as hiring has gradually improved and more people pay off their bills. For example, Phoenix-area filings over the first half of 2014 are down 54 percent over the same period in 2013, with a similar trend apparent around the state and nation.

But that doesn't mean everyone is in good financial shape. A lot of debt-strapped people don't file for bankruptcy because they can't afford to pay attorney and court costs. Here are some indicators of financial stress provided by Credit.com that could indicate you might be teetering on the edge.

- You're already missing payments. This is the most basic sign. If you can't pay bills as they come due, that could indicate your debt has become excessive. It's especially worrisome if you can't meet major obligations such as a mortgage or auto-loan payment on time. (Arizona has the second-highest auto-repo rate, second only to Nevada's, reports credit-bureau Experian.) Credit-card bills are another litmus test. If you can't handle even the minimum monthly payments, watch out.

- You can't qualify for debt management. Some consumers seek help by enrolling in a credit-counseling or debt-management plan, where a company or nonprofit group works on your behalf to prioritize bills, pay them in an orderly fashion and contact creditors to seek some type of relief. But you need assets or, especially, income to qualify for these programs. If you don't have them, you won't be able to enroll. If looking for credit help, consider a referral from National Foundation for Credit Counseling at nfcc.org.

- You have exhausted your home-equity option. A home-equity loan can be used to pay down other types of debt such as credit-card balances, which feature higher interest rates. "The trick is to pay off the credit cards and not run them up again," said Credit.com. If you haven't cleared up your other debt problems after tapping the home-equity option, you could be in even worse shape. Then again, a home-equity loan isn't even an option for the one in three households that don't own dwellings — or others with negative equity.

- You're getting phone calls from debt collectors. Another red flag involves threatening letters or demanding phone calls from debt collectors. "This usually occurs when your debts are 30 to 90 days past due," said Credit.com. "You might also get notices that a past-due account has been reported on your credit report, put into collections or charged off as uncollectable." A recent Urban InstituteCQ study indicated nearly 39 percent of Arizonans have debt in collections — almost four percentage points above the U.S. average.

- You have maxed out your credit cards. Credit.com cites this as a key bankruptcy tipping point. Once you have run up the maximum allowable balances on your credit cards, you eventually will hit a wall, unable to get those maximums increased further and unable to gain approval for other types of loans. Another bad sign is relying on credit cards to cover basics expenses such as groceries or gasoline because no income source is available.

- You have turned to high-cost loans. It's bad enough to use credit cards to fill short-term funding gaps, but turning to payday loans or vehicle-title loans can be worse. "Many of these loans have exorbitant interest rates, and they can often put you into a cycle of debt, where you're rolling over one loan to the next," said Credit.com. "Under these circumstances, bankruptcy can seem like the only escape."

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- You can't recover from a major financial setback. Many Americans don't have an emergency cash reserve on the sidelines —roughly two in five Americans couldn't scrape together even $2,000 within a month, according to a study by FINRA, the Financial Industry Regulatory Authority. That's why a big unreimbursed medical bill, a divorce, a job loss or other financial shocks can push people into bankruptcy. It's best to plan ahead before calamity strikes.